For the first quarter of 2019, Erasmus School of Economics predicts an economic growth of 0.5%, compared with the same quarter last year. This percentage is calculated with the ‘Econometric Institute Current Indicator of the Economy’ (EICIE), which is an indicator which measures the current state of the economy. Whereas Statistics Netherlands (CBS) only gives a first impression 45 days after the quarter, the EICIE, which is improved by using machine learning techniques and sentiment variables, already does this during the current quarter itself.
After extensive testing, evaluations and many calculations, it is time to present the new indicator for the current 2019Q1. For the 2018Q4, the EICIE predicted an economic growth of 2.1% as compared to the same quarter a year ago. For the current 2019Q1, however, a sharp decline in economic growth is expected.
The renewed EICIE is based on input collected from 1.4 million newsarticles from NRC Handelsblad. Words (such as: unemployment), short sentences (such as: housing prices continue to increase) and statements were coded and subsequently put together in a (smaller) number of variables. A neutral network of 5 subsequent layers has been used to relate economic growth of previous quarters to the sentiment. The model is tested on its internal validity and external validity and was used after to calculate the new EICIE, using all information known as of today.
The new EICIE predicts an economic growth of only 0.5%. As such, economic growth seems to decline rapidly in the Netherlands. Together with the decline in 2018Q4, this prediction confirms the expectations of CBS for less growth in 2019.